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In recent years, Ireland’s public finances have faced challenges in paying for the transition to a carbon-free economy.

Now, the Economic and Social Research Institute (ESRI) has suggested that there will be “sizeable tax increases in the years ahead” to fund public services.

An over-reliance on corporate tax receipts and changes to motor tax has resulted in a need for alternative sources of revenue, the think-tank has revealed.

Laying out a range of options for tax increases, the ESRI believe it will be needed even more so now that public expenditure has gone up since the Covid-19 pandemic.

Not only this, but the shift to electric vehicles will also put approximately €3 billion in motor tax at risk.

To deal with this, it has described increases in the main rates of income tax, USC and PRSI, as the easiest and fairest way to raise this additional revenue.

However, tax reliefs on everything from property investments to the inheritance of farms, pensions and Help-to-Buy schemes have also been aimed at by ESRI.

What about corporation tax?

On corporation tax alone, it said that over half of the €10.9 billion collected in 2019 came from just 10 large companies but any increase in the 12.5 per cent rate could have a negative impact on investment.

Domestic firms, particularly smaller ones that utilise retained profits rather than loans for investment in business could also experience knock-on effects.

What about local property tax?

The paper noted that it is still bringing in just under half a billion euro; the same amount it did in its first full year in 2014. An additional 100,000 properties have been built since then, of which around half were purchased by owner-occupiers.

These owner-occupier properties built since 2012 have been exempt from property tax.

Higher property tax might also dampen down the property price inflation. If the Government were to revise the valuations originally done in 2013 to reflect the current situation for market rates, it could potentially raise an additional €275 million a year.

The ESRI has also stated that designing a wealth tax for Ireland that is successful might be difficult as approximately 60 per cent of wealth is regarding principal private residences, which are already taxed, and 30 per cent in other forms of property.

What about pension tax?

Some details were noted on possible changes to how pensions are taxed.

It suggested that less generous allowances for lump sums could be merged with higher tax credits for pension incomes to raise an additional €134 million a year.

What about environmental tax?

It has been stated that fossil fuel subsidies cost the State €2.4 billion in 2019. Not only this but 89 per cent were related to a range of tax reliefs.

Overall, the paper published has stated that reforming tax reliefs would ensure a simpler and more efficient delivery and arguably a fairer tax system.

People and businesses are subject to a wide range of taxes. Tax planning with McMahon & Co. Kildare Accountants can help reduce or remove the effect of these taxes, whether you’re a business or individual.

For more help or advice, contact our expert team today.